Click to enlarge image: Profile of a typical habitual saver
Alina Geosanu, is typical of most people in their early twenties starting out in their career: "I don't think about retirement just because it seems so far away and it makes 'no sense'". However, once shown the significant difference habitual saving from an early age can make, she admits, "it's an issue I should seriously consider".
And attitudes towards retirement saving don't change much for people in their early thirties or even forties. During these life stages, retirement saving simply takes second priority to other demands such as house purchases or children.
Habitual savers
The Aegon Retirement Readiness Survey examined the profile of those who are habitual retirement savers, meaning that they save consistently and regularly. This group of people score much higher in the Aegon Retirement Readiness Index, a measure of how prepared someone is for a comfortable retirement.
Habitual savers tend to be older – people develop the habit later in life. That said, this group of savers are not super wealthy; the average habitual saver earns approximately $41,000 per year, making it a realistic aspiration for many. One of the drivers for this behavior is psychological - people start saving on a habitual basis when they realize that retirement is that close it can't be postponed anymore.
What do habitual savers look like?
- more likely to be male
- fall in the pre-retirement age category (55-64 year olds)
- they take personal responsibility for retirement, 79% of them having a retirement planning strategy
- nearly half of the group has prepared a back-up plan for unforeseen events that might have severe financial consequences
- they aren't wealthy, with average earnings of $41,000 per year
- they are mostly positive about retirement
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Forty-five percent of people say that receiving a pay rise would encourage them to save for retirement, making it the biggest single trigger. However, non-financial factors also played a large role in encouraging people to save more. Some of the most commonly cited are related to helping people gain better insight into their retirement savings, building awareness and educating them about the market.
If a small change in our mentality can help us put aside a small amount of money from an early age, the difference it can make to our retirement funds is exponential. The table below clearly highlights this. Retiring at age 67, the annual retirement income for those who start saving at age 20 is almost 4 times higher than those who start saving for retirement later in life in their mid 40s.
Click image to enlarge
Deferring retirement by a couple of years can also have a significant impact on your annual retirement income. Calculations in the 2015 Aegon Retirement Readiness Survey show that working five more years, until age 70 would increase this by $10,000 per year.
In short – don't wait too long before you start saving on a habitual basis, and if you are concerned about the level of your retirement income, consider postponing retirement by a couple of years. These two strategies will help you maximize your retirement income.
